US Treasury bans Tornado Cash mixer for role in crypto money laundering

US banned Tornado Cash and other crypto mixers

The US Treasury Department added the Tornado Cash crypto mixer to its list of sanctioned entities, banned all US citizens from interacting with the organization, and required the reporting of US assets belonging to Tornado Cash to the Office of Foreign Assets Control. 

The announcement was made  Monday morning by the Treasury Department in a press release citing Tornado Cash's role in laundering stolen cryptocurrency in major hacks, especially those involving North Korean hacking groups. In March, $625 million was stolen from the blockchain behind the cryptocurrency game Axie Infinity and laundered through Tornado Cash — a theft the FBI attributed to  North Korea-based Lazarus Corporation. 

Treasury's aggressive move is the latest escalation in a series of enforcement actions against Tornado Cash and other crypto mixers, which help conceal crypto transactions by pooling funds and later redistributing them to contributors. In a statement, Brian E. Nelson, Undersecretary of the Treasury for Counterterrorism and Financial Intelligence, said blender has not taken adequate steps to prevent its services from being used by some of the most common cybercriminals.

“Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States,” Nelson said. “Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks.”

“Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them,” Nelson said.

Tornado Cash is now the second crypto mixer to be effectively separated from the US financial system. In May, the Treasury added Blender.io to its sanctions list, also citing the use of Blender by North Korean hacking groups as well as global ransomware gangs like Conti and Trickbot. 

While there are legitimate privacy-focused uses for cryptocurrency blenders, tools like Tornado Cash and Blender certainly play an important role in helping criminal gangs organized to launder proceeds of crime in a way that cannot be traced by standard blockchain tracking techniques. In January 2022, blockchain analytics firm Chainalysis reported that the use of crypto mixers had hit an all-time high, with year-over-year increases driven mainly by sending transactions. coming from portfolio crypto addresses associated with cybercrime. 

In a possible attempt to evade regulation, Tornado Cash is established as a decentralized financial product, meaning that the software code that runs the service is distributed on the Ethereum network rather than running on machines. owner based in a particular country. However, the Treasury's sanctions list entry for Tornado Cash targets the mixer by specifying certain Ethereum addresses associated with it, banning US entities of any kind from trading translate with those addresses. 

While the  Tornado Cash sanctions are a stern rebuke from the Treasury Department, the accompanying press release appears to leave the door open for a change of policy if the mixer operates to better comply with the guidelines set forth by the agency. issued by management.

"The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior,” the statement ends.